Richard Natale is a freelance economic reporter who covers the film industry
for The Los Angeles Times. Here, Natale discusses the economics of
"star power," and the shrinking influence of studio bosses within the media
conglomerates that now own their companies. "There is usually a great robber
baron like Rupert Murdoch or Sumner Redstone running all of those divisions,"
says Natale. And studio bosses, he says, must understand the hierarchy: "You
better plug into that agenda or you'll be gone, because you're middle
management."

This interview was conducted in June 2001.

How long have you been covering the film business?

I've been covering for it about the past 15 years now.

What kinds of changes have you seen over the years?

Well, the business has changed a great deal over the past 15 years. It's gone
from being a ... big company town, to a global corporate company town.

What has been the biggest change?

The biggest change I would say has been the fact that all the major studios
have been swallowed up into gigantic corporations. So they become a small, yet
significant part of an overall entertainment media conglomeration. ...

How small of a division is the entertainment division in an overall
company?

Depends on what you mean by the entertainment division, because the movie
division has gotten smaller in terms of the overall company. But once you start
factoring in DVD and home video and the selling of those movies to television
and the use of those movies to create a movie channel, it starts to get larger.
So the movies being released in theaters is maybe, like, 20 percent or 15
percent of the business.

But once you start adding all of those other things, it's like an engine. It
becomes the engine that drives the rest of the company. You sell a soundtrack
to that movie and that feeds your music division. You have merchandise or books
that are related to that, and that feeds your book and magazine division and
stuff like that.

How do these three companies cross-collateralize a film?

There are many ways to cross-collateralize a film. I guess Disney or Universal
will probably be the best examples, in that they can create everything from
soundtracks to merchandising to TV series, to direct-to-video sequels to a lot
of their bigger hit movies, and especially [with] the animated movies, theme
park attractions. So it really begins to mushroom. In the case of Disney,
they've created Broadway shows from one of their movies. So it can be
never-ending. It's what's called a franchise, and studios are very eager to be
in the franchise business. They are always looking to try to create a new
franchise that will carry then four, five, to 10 years.

[Note: See the "Anatomy of a Monster" section of this website for more information on the seven major studios and their film-related assets.]

Who are the companies that are taking over the business?

Obviously, the AOL Time Warner merger was humongous, and has subsumed so many
different companies, including Turner and Time Inc., as the Internet, Warner
Brothers, New Line Pictures. When you start to think about it, it's enormous.
They have the WB Network ... Warner Brothers Music. I mean, God, it's an
enormous company. And while no one's quite that big yet, at this point there
are many companies that are half or two-thirds as big, and mirror that in terms
of the various divisions that they have.

People are noticing the corporate clash with how they used to do
business.

Well, the corporate sensibility is very bottom-line oriented. It's not that
Hollywood has never been bottom-line oriented; but it's kind been a big boys'
club, and there was a great deal of mixing of social and business concerns. A
lot of that has had to fall by the wayside, because they have to answer the
same as General Motors has to answer. You have a much larger corporate culture,
and you have so many different ways in which you have to answer to the ultimate
boss.

[In] the 1970s and early 1980s, there was someone who ran the film and
television division, and that was the boss. Then there were a couple of other
layers below that. Now, the layers just get thicker and thicker and thicker,
and there are just so many people that have to say yes to something, and so
many people that you have to please, that it becomes almost impossible to do
anything that comes from your gut. You have to justify everything in terms of
every penny of expenditure.

There is kind of a new breed of manager.

Well, we're seeing a great number of managers that have taken over that either
come from a legal background or a business background. So it's accountants and
lawyers. And, of course, that's always been the joke -- in any sort of big
company, that it's all run by accountants and lawyers -- but it's never been
more true than it is right now.

These former studio bosses who had a real desire to actually make movies rather
than turn out product, they're feeling the pressure. At one time, to go off and
become a producer was kind of a badge of shame, because it means you couldn't
make enough good movies when you were working in the studio and you couldn't
hang on to your job.

Right now, it's become the preferred place to go, because at least you can try
to patch together the money to make the movies that you want to make -- rather
than the movies that the studio expects you to make -- that are going to throw
off a significant amount of profit and be worth the time and trouble.

It seems like you have to approach everything in a different way now.

The studios have become just a place full of corporate offices. ... So those
people who want to actually create movies, you can't work it really in that
kind of an environment. The studios essentially are distributors of movies that
are made by other people, and either partly or totally financed by them.

Do you have a sense of the guys still on the lot?

The people who stay on the lot have become less and less casual. It's become
less of a casual business and more of a grind, more of a nine-to-nine job.

Do you have insight on what it does to the creative process?

It's very easy to see what this kind of environment does to the creative
process. It's basically become a second-guess process. The concept has to be
large; the stars attached have to be large. Basically, the studios are in the
business of buying -- this is not all that different, but it's become more
different -- they're in the process of buying packages. So I have to come to
you with a viable concept, a star attached to it, a director who makes sense
and who can get it in on time, and a very good marketing hook. I have to come
to you with all of that stuff, and then and only then will the studios say,
"Yes, I will go for it," or "Yes, I will go for it if you can find half the
budget somewhere else."

It seems like every movie now has to be an event.

Particularly in summer and at the end of the year -- where there's the biggest
surge in attendance -- that's when the studios make their event movies, because
they can make the most amount of money. And the reason to create an event is to
create a sequel to an event and to create an entire business around a single
movie. That's pretty much destroyed any sort of real impetus to create anything
that even remotely resembles art.

It seems as though they're competing against each other's marketing
campaigns.

The marketing campaign really has come since the late 1970s, since the advent
of mass national distribution. The marketing campaign really leads the movie.
Most scripts don't get approved unless the marketing department chimes in and
says, "Yes, I can sell this effectively." If the marketing department can't
sell it effectively, the movie probably doesn't get made.

It seems as though everything is being controlled in-house?

The studios are trying to do that, because most of the studios own networks.
And since there is no ban any longer on owning your own programming, that's
another thing that the studio can bring in-house that they can control and they
can own in perpetuity. It becomes another division of their library, rather
than just being a distributor or a middleman on a particular TV series or
movie.

It seems as though sweetheart deals can be made within the studios.

The whole problem with corporate synergy is that it actually can work much too
effectively. If you create a product that you think can be rolled out as a TV
series, and can then sell on home video, you can create sequels to it, you can
sell merchandise against it, you can write books about it, you can make video
games. Everybody has to be basically in agreement on how it has to work, so
everybody has input. So the video game guy goes, "We need a little bit more of
this, because it'll make for a more exciting video game." So then the script
gets changed from the start to make that happen. And so it can work very
effectively, because everybody can make big money off the deal. Unfortunately,
most of the time what you see is not worth going to see.

Why have movies gotten so expensive over the last few years?

Movies have gotten very expensive because if you're creating an event, you have
to spend money to create an event. So the studio would rather spend a lot of
money on a movie that they think can make a great deal of money, than to try to
nurture a movie that is quirky or different and convince people to go to see
it. So it behooves them to spend $100 million on a movie, fill it with special
effects, market the hell out of it, and then hope for the best.

Talk about star salaries and how they've gone up.

Star salaries have gotten very big because, as part of creating an event, if
you don't have a movie that has special effects -- or even if you do, in some
cases -- you want to anchor that around a large personality. And those
personalities, as always, are few and far between. Even back in the old studio
days, there were basically five to 10 stars who were very big. And so
everybody wants those very big stars. It's the law of supply and demand. If I
want you and I want you to do my movie before you do that movie, I am willing
to fork out another $5 million. So that just keeps expanding. I'm willing to
give you 10 percent or 15 percent of the gross because I want you so badly and
I need to line you up. A Bruce Willis or a Tom Cruise, they're booked basically
in perpetuity. If you want to get a slot, if one of their movies gets
postponed, you're willing to cough up some serious bucks. ...

Why is it so important to have Bruce Willis or Tom Cruise?

Because a bad movie with Bruce Willis will make more money than a bad movie
without Bruce Willis. And a good movie with Bruce Willis will make a lot more
money than a good movie without Bruce Willis. At least that's the concept.

What does that do to everybody else involved in production?

When the star takes away a lot of money, you find an inequity. If you look at
any of the big, big stars, very rarely do you see a female or male of equal
stature with that person. It would just become too cost-prohibitive. So it's
kind of nice that some young actress can get to star opposite Tom Cruise, but
as soon as she becomes more valuable, they can't re-pair those people or put
them back together again, because it just costs too much money.

Who makes the money now?

I would say stars and star directors and star producers are the people who are
making the biggest profit in movies. It's not that studios aren't making a
great deal of money on movies; it's just that they're not netting a great deal
of money on movies. If you have a movie that grosses $200 million and you're
paying, in some cases, 20 percent to 30 percent of that to talent, what you get
back on that is in the best case scenario, good, in the worst scenario,
marginal.

What does the studio make, as opposed to what the stars walk with?

Right now, the stars basically have a stranglehold on the studios. Whether it's
a hit or a miss, they're the people who make a great deal of money. If it's a
big hit, they make even more money. I think the perfect analogy is a corporate
CEO. The stock in a company can go down or it can go up and his bonus and his
stock options and all of that stuff like that is always there. So, you know,
PG&E goes bankrupt and all of their people get huge bonuses at the same
time.

Why has the marketing become so expensive and important?

Since movies are created to be marketed, therefore the marketing takes
precedence over the movie itself, in many cases. If you're opening a movie in
3,000 theaters and usually 5,000-6,000 screens on its opening weekend, you have
to spend a great deal of money to make sure that you fill those theaters,
because there's another movie coming up right behind you. And if you don't fill
those theaters, you are going to start to lose screens like that, and your
movie is dead in the water. So you have to open very big. The bigger you want
to open, the more money you have to spend. If you've spent $100 million on a
movie, you have to spend another $20 million to open it.

What is the danger in that, when a movie is expensive but doesn't
click?

The danger in spending a great deal of money and having to spend a great deal
in marketing is that you come out with a movie that sometimes works and
sometimes doesn't. ...

A movie like "Pearl Harbor" -- which was basically in every way designed to be
"Titanic," even though the people at Disney will deny it... They will not do
half of $1.8 billion, which is what "Titanic" did. But the investment was
almost as great. They spent $140 million to make it. They spent over $100
million to market it worldwide. And they will come away with probably $400
million to $500 million at the box office, half of which is returned to the
studio.

But then you have to factor in all of the other costs that go into making that
movie, plus the fact that a lot of people, believe it or not, at $140 million,
took a cut in pay and took money off the backend after the studio breaks even.
So even when the studio breaks even, which it will on something like "Pearl
Harbor," they are going to give away a percentage of that movie somewhere in
the neighborhood of 25 percent. So what's left to them is not going to really
carry them for a great deal of time. And the reason to create a movie like that
is that it's going to take you through some lean months or years.

It used to be that your big film would carry little ones, but now they're
all big.

... If you made a little miss and a big hit, you really covered yourself. But
now they're making big misses and big hits, so you can see that the profit
ratio is shrinking.

It seems like such a huge gamble, and every time it gets bigger.

The gambles are bigger because they want them to be bigger. Part of the
corporate culture is to create a brand name. You want to go to your bosses and
say, "I can bring you "Tomb Raider," and "Tomb Raider" will be two, three, four
movies. Then we can spin it off and make a TV series out of it. We have a great
soundtrack. We'll sell millions in video. It'll be a great title for when we go
to television and syndication and cable." And the gamble is part of the
excitement now. So it's become really a gamble, rather than a sort of curious
mixture of business and art.

"Tomb Raider" is a huge franchise, but in reality, it shrinks down to a
profit for very few people.

Well, of course. But the reason for that is that they have all these other
divisions to feed. So you create a "Tomb Raider" so you can make your home
video division happy. You create a "Tomb Raider" so that you can make your
television division happy, because maybe at one point you want to do a
syndicated series or a series on the WB that's based on "Tomb Raider." So you
start to create that, because you want to make all the people happy in your
company. And the happier you make the people in the company, the better you
look, and the more the bosses smile down upon you.

If you're an independent in any way, how does all that affect you?

Independent people have been feeling the squeeze for a long period of time, and
they've always had only a sort of fraction of the movie business. By creating
these huge a priori blockbusters that people will at least go out and sample in
the first weekend because they've been hyped to death about it, it leaves very
little room for anything that's other than an exceptional little film to break
through. But if you look at a movie like "Memento," which is nowhere on the
map... "Memento" is going to be far more of a profitable movie, I think, than
most studio movies this year, because it somehow managed to break through. Who
knows why? Maybe because it's a good movie. ...

The box office race has become like the Top 10 chart. I grew up listening to
what the Top 10 was, and how it changed from week to weekend. I think that box
office has turned into that. When you can make $50 million in your opening
weekend in box office, that's pretty good publicity. So, as much as the studios
complain about box office, they use it as part of their marketing machine.

Most times, three out of 10 isn't bad. But in the box office, it's a
disaster. Why is that?

When you come in third on any given weekend, it means that the next weekend
you're probably going to be fifth or sixth. And if you're not in the top five,
you might as well not be there, because people are not going to notice the
movie as much. Fewer people will go and you'll disappear very quickly, because
there's new movies coming in every week. So you don't want to open at number
three. You want to open at number two or, hopefully, number one.

Do you think that affects what the moviegoer goes to see?

Absolutely. I think that just as everybody, when they hear that it's the number
one song, they go out and buy this. It's the number one song, it must be the
best song on the Top 10. If it's the number seven song, it must be the seventh
best. It's the same thing in movies. You're going to go out and see one movie
this weekend, at most. Which one are you going to go see, the number seven
movie or the number one movie? ...

Talk about the relationship between the opening weekend of a movie and the
stock price of the company.

Only in very rare instances can the opening weekend of a movie really affect
the stock price. In the case of "Pearl Harbor," for instance, Disney got a bit
of an uptick right before the movie opened. As with all good news on Wall
Street, the price usually goes up in anticipation. If it had lived up to those
expectations, or exceeded those expectations, I think the bump would have been
a little smoother and a little longer. As it was, the stock went back down to
where it was.

But more importantly these days is having a hit on the order of "Survivor" or
"Who Wants To Be A Millionaire" on television, because that's not a one-tick
opportunity. So Disney rode "Who Wants To Be A Millionaire," because they own
ABC, for the better part of a year. Gave them a tremendous boost in the long
return. Of course, if you have "Titanic," then yes, that's going to help.

The studio heads now seem to be division heads rather than the
master.

Studio heads, they either run the film and/or television division of a
particular studio. But there's so much more to that studio right now, and there
is usually a great robber baron like Rupert Murdoch or Sumner Redstone running
all of those divisions. So you basically answer to that person, and that
person's agenda is what the agenda for the entire company is, and you better
plug into that agenda or you'll be gone, because you're middle management.

Is the attendance up at movies?

There's one way to gauge whether attendance is up -- if the box office for a
particular week or month or year is up more than 5 percent over the previous
year, because every year, there's about 3-5 percent inflation built into ticket
prices. If box office is up 10 percent for the year, you've had a 5 percent net
gain in attendance. If the past weekend box office receipts were up 28 percent,
that's a significant number of greater ticket sales in terms of attendance.

Do you think these big blockbusters are going to start turning the audience
away?

The blockbuster mentality is good as long as the blockbuster delivers. If you
have four or five blockbusters in a row that don't deliver, you're going to
lose your audience. But if they deliver on a certain level of satisfaction, it
doesn't necessarily make movies any better, but it certainly makes the business
better. ...

What are the big financial stories?

The big financial stories are the fact that movies are not that profitable,
ultimately. The amount of expenditure that goes into them does not make a movie
very profitable anymore. And because they are subsumed within a giant corporate
culture, with so many people who have to be employed and so many different fees
and distribution and profit participation, there's very little profit made
anymore. What you're doing is throwing big numbers at people.

The studios are very fond of something called market share. ... They want to
have 20 percent of the market or more in a given year and be the number one,
but that says absolutely nothing about how profitable that particular studio
was. They may have released 50 movies, each of which grossed X amount and gave
them a 20 percent box office share, so they sold one out of every five tickets.

But those movies were also expensive. They didn't really make any profit. And
the studio that's ranked third maybe released five or 12 movies, and all of
them were profitable. Therefore, they're actually the success story of that
given year. It's all become about numbers. It's all become about dazzle. It's
become all about sizzle, and no steak.

Everywhere there is one giant hardware store and one giant supermarket. Is
that happening to the movie business?

I think just like every other business, the movie business has become Home
Depot. A studio is like Home Depot. It's a one-stop shop. They're no longer run
by people who at all care about movies on any really essential level.

Are they driving out the mom-and-pop stores?

The movie business was never really a mom-and-pop operation, because the major
studios were always the major studios. But they were run by sort of crass,
vulgar guys who wanted desperately to buy into the American dream. They wanted
to create things that moved you in some way emotionally so that you'd go see
it, and so that it would make money. ... Something that really touched you on a
certain level, so that you could go back 10 or 20 years from now and look at it
and still be pleased by it.

I don't think they did that consciously; but in some ways I think they wanted
respectability, in addition to money. In order to have respectability, you have
to create something that commands respect. I don't think that anyone who runs a
studio today gives a hoot about respect. They want money.

Can you talk about the downsizing involved because of the corporate
mentality?

When you combine different kinds of companies together, then you have four
distribution organizations for those four divisions. You say, "Well, we could
probably make due with two here, because we could combine and make certain
efficiencies." That really sort of makes good business sense. It always has
made good business sense. What it sort of engenders is, it's no longer show
business; it's business. So you are really being run in terms of piece goods --
the number of units you can sell, the number of people you can get into a movie
theater. When you come out of a movie preview now ... people no longer ask you
how you liked it. They ask you what's it going to do, how much money is it
going to make. And that started about 10 or 15 years ago, when I first started
covering this business.

No, people are not at all interested in what you think of a movie. ... Movie
critics have probably the worst job in the entire world, because what they're
doing is basically judging video games. ... How can you talk about the artistic
merit of a video game?

[What do you think that's going to create?]

People burning with passion have to find some other way to make movies now.
There are fortunately one or two people who you can still go to, who have a
real feeling for movies and really love movies -- people like Harvey Weinstein.
But you have to find a different way, if you really want to get a movie that
you're passionate about made. You basically have to do it yourself. And that
means either raising the money through a group of wealthy friends or
benefactors, or making it on a shoestring and making it yourself. There are
fewer and fewer opportunities for that to happen. If you have passion and
you're in the movie business, you might just be in the wrong business.

Any predictions about the future and where it's all going?

I think that the business has gotten as big as it can possibly get, which is
not to say that it can't grow. But I think that the sort of elephantitis that
surrounds the movie business right now can't really get much bigger, simply
because there's never going to be a great expansion in the number of people who
go to the movies. You can have special movies that make people who never go
to the movies come out, or people who only go to the movies once a year, come
out. But you can't create those on a regular basis. It's impossible. Even if
you wanted to, or even if you had all the creative manpower and talent
available to you, the cost structure has gotten prohibitive.

So I think that we're in the era of the dinosaurs. Movies have become
dinosaurs. I think they will continue to exist, but I think they will become
ultimately less and less interesting. A film critic whom I respect a great deal
named Todd McCarthy, who's the film critic for Variety, wrote a piece
railing against the first six months of this year, in terms of the output of
the major studios. [He said] that there wasn't a single movie of merit that
came out during that period of time, and the only thing that he looked forward
to on a regular basis was going home to watch "The Sopranos" on Sunday night.

For Todd McCarthy, who is as dyed-in-the-wool a movie fanatic as I know -- he
adores movies, he lives and breathes them -- to say something like that is very
serious, as far as I'm concerned. For him to prefer television is almost
shocking. If you asked several other film critics, I'm sure that they would say
the same thing. And once that starts to happen, it can't be good. It can't be
good.

Anything else you want to talk about?

What we haven't talked about is the foreign box office. ... What most people
forget is that movies are no longer made just for the U.S. It's important that
a movie be a success in the U.S., because it helps it become a success
overseas. But the number of theaters is shrinking in the U.S., and the amount
of overall business that a movie does in the U.S. versus the rest of the world
is shrinking. So more and more movies are made to satisfy a foreign audience,
which doesn't understand English, and so therefore plot and character are not
as interesting, because they don't necessarily translate around the world;
whereas action and special effects are a universal language.

The latest area in the world that is starting to burgeon is South America.
First it was Europe, then Asia, now South America. Eventually it will be
Africa, Australia, all of those places are very important to the financial
success of a movie. A big action movie like "Armageddon" can do almost twice as
much overseas as it did in the U.S. And that's going to continue to grow.

So the international reach of a movie is much more important. If you don't
really understand it, it doesn't really make much difference because "The Mummy
Returns" is going to play everywhere in the world, and is going to be embraced
everywhere in the world, because it delivers on a certain action level. Even if
the plot doesn't make a great deal of sense, people are watching it in
subtitles or dubbed -- they don't really care. And that has had a profound
affect on the movies that are made and the kinds of movies that are made.

You will see certain movie stars, like Brad Pitt, who hasn't really had a hit
in America in maybe five or six years, continue to make movies because he's a
very big star in Japan, he's a very big star in Germany. And that's very
important. Tom Cruise couldn't be bigger anywhere around the world. Julia
Roberts, the same thing. But they are as big, if not bigger, overseas and that
really has shifted the equation, and everybody knows that. That's going to
continue to get bigger and bigger and bigger.

So the kind of movie that we used to make back in the 1970s, with rare
exception, no longer is viable around the world, because we're no longer really
leading in so many things. We've become such an important export in terms of
dollars and cents, that movies have to be made palatable for every culture,
every religion, for everyone.

Something like "The Matrix," which happens to be a very good movie of its kind,
really knocked people's socks off overseas. So therefore there are going to be
two sequels to it, and you want to make that kind of movie. That's the kind of
movie you want to make. You don't want to make "American Beauty," because what
can you do with "American Beauty"? Even though it was an enormous success and
an even bigger success overseas than it was in the U.S., you can't do anything
with it. You can't make a sequel to "American Beauty." You can't make a copy of
"American Beauty." If you can't repeat the success of something, what's the
point of making it in the first place? It's much better to make something that
you can repeat and repeat and repeat and repeat and repeat. You can make
"Jurassic Parks" from now to as far as the eye can see, if they continue to
perform.